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What are we looking for?

Companies well positioned for a shift in consumer preferences.

The screen

The environmental issues associated with the carbon emissions from burning hydrocarbons have been discussed for a long time. More recently, attention is also being paid to another hydrocarbon product – plastic. A recent feature in The Globe and Mail on the recycling industry cited a study by Deloitte for Environment and Climate Change Canada, which found that only 9 per cent of plastic waste generated in Canada is recycled. In 2016, 36 per cent of all of Canada’s plastic waste that was collected for recycling was exported. In 2017, China banned the import of 24 types of recyclable commodities (including plastics) and their imports of plastic waste from Canada have since dropped by 96 per cent. This is causing major strains and backlogs on Canada’s already inefficient recycling system. And the plastics crisis is not a problem unique to Canada. According to the World Economic Forum, the equivalent of a garbage truck’s worth of plastic waste is dumped into the ocean every minute, and by 2050, there will be more plastic waste in the ocean, by mass, than fish.

If either regulators or society, or both, start demanding that companies do more to combat this problem, many firms will have to make significant, expensive changes. However, those already leading the charge should benefit from the shift in preference to companies acting responsibly with regards to the waste they produce.

To identify companies whose shares could perform well in the immediate future, we screen for all Canadian companies whose Refinitiv SmartEstimate price-to-earnings ratio and dividend yield for the next 12 months (NTM) are less than 15 times and 3 per cent or more, respectively.

Next we screen for companies whose waste per $1-million of revenue is no more than five tonnes, and that recycle at least 60 per cent of the waste they produce, according to Refinitiv’s ESG database. To pass the screen, companies must also report on initiatives to recycle, reduce, reuse, substitute, treat or phase out total waste.

Finally, we screen on Refinitiv’s Emissions Score, which is a subcategory of the company’s overall ESG Score, and require a score of 75. The Emissions Score considers greenhouse gases as well as solid waste, and a company’s score is its percentile rank relative to its industry peers globally, meaning there is no sector bias.

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What we found

The screen yields four companies in very different industries – a bank, a retailer, a diamond-miner and a telecom. Bank of Montreal leads in every environmental metric considered. BMO has taken steps such as donating old technology equipment to charity (in a way that safeguards customer’s privacy and confidentiality) and recycling all paper that it shreds for security reasons. Over the past four years, BMO has diverted 685 tonnes of office equipment from landfill and recycled 26,750 tonnes of paper.

Lucara Diamond Corp. is also implementing creative solutions. Water scarcity is a serious problem in sub-Saharan Africa, where the company operates. Lucara’s waste water is treated to a quality that is compliant for surface-water discharge and the miner uses this water to irrigate lawns and gardens around their office buildings and for land restorations.

Investors are advised to do their own research before trading in any of the securities shown here.

Select TSX-listed firms with strong environmental metrics

CompanyTickerMarket Cap ($Mil)Emissions ScoreWaste/$Mil Revenues (Tonnes) Waste Recycled (%)P/E (NTM SmartEstimate)Div. Yield (%) (NTM SmartEstimate)1Yr Return (%)Recent Close ($)
Bank of MontrealBMO-T 66,060.6 97.30.589.710.44.16.4103.42
Canadian TireCTC-A-T 8,967.5 84.53.278.010.53.1-14.2140.64
Rogers CommunicationsRCI-B-T 35,373.8 83.70.762.014.83.013.168.75
Lucara Diamond CorpLUC-T 599.0 78.01.372.814.06.8-21.91.51

Source: Refinitiv

Hugh Smith, CFA, MBA, is the manager of Refinitiv’s investment management business for the Americas and a director on the board of the Responsible Investment Association of Canada.

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